An econometric model for analyzing regional source and use of funds in U.S. agriculture: an application of random coefficients technique

The purpose of this study is to develop a regional econometric model for analyzing the source and the use of funds in U.S. agriculture. To accomplish this task, a set of behavioral functions for the source and the use of funds are specified and estimated using a random coefficient technique. For the time being, the source of funds equations are estimated through a time trend. Once the model is merged with the Center for Agricultural and Rural Development (CARD)--national econometric model, the source of funds will be determined endogenously from other sectors of the national model. Fixed expenditures, production expenditures, household expenditures, and land transfers are the major categories of the use of funds. Various disaggregation of the use of funds are considered for each category of the use of funds. Further, the random coefficient technique is used in the functional forms to capture the ongoing structural changes in U.S. agriculture;The results reveal farm size, user cost of capital, and crop price index are significant variables in fixed expenditure functions; planted acres, prices paid indexes are significant variables in production expenditure equations; net farm income is a significant variable in land price equations;A simulation model for the 11 regions is developed from the estimated functions and tested for its validity. The model is found to be a valid one. Based on policy simulation, a 25 percent increase in price paid indexes has a more significant negative impact in the fixed expenses than in the production expenses. On a similar note, a 50 percent increase in prices received indexes will boost the fixed expenses more than the production expenses. But, a 10 percent reduction in crop planted acres significantly reduces the production expenditures. Further, regional variation in the simulation results are observed. The U.S. agriculture sector can withstand some adverse financial crisis for a considerable time period, and the Corn Belt and the Northern Plains have a higher leverage against the financial crisis.